Sinclair needs more than expected political-spending boom

Jay Hancock

"Working. For you," is the slogan of WPEC-TV in West Palm Beach, Fla. But next year, Sinclair Broadcast Group expects WPEC to also work especially hard for Sinclair shareholders as it rakes in advertising money on behalf of candidates for Congress and the presidency.

Thanks to the Supreme Court's removal of restrictions on political spending and Florida's perennial status as a political battlefield, West Palm Beach viewers are likely to be blasted by more ads than ever, suggesting Republicans will wreck Medicare and Democrats will wreck the country.

As a result, WPEC will book a ton of revenue, which is a big reason analysts believe Sinclair agreed this month to buy the station, along with seven others owned by Freedom Communications.

OK, so TV stations aren't exactly booming. But they're doing better than other old media. Sinclair parted with a decent amount of dough for the stations — $385 million, which, as a multiple of their profits, implies growth or at least stability.

Maybe Sinclair, a Hunt Valley-based local-TV company that has messed around with car dealerships and professional wrestling, has decided that its long-term future is as a local-TV company. Whether or not that means it'll start delivering better returns to public shareholders remains to be seen.

In September, Sinclair agreed to buy seven TV stations in Texas, Rhode Island and Utah from Four Points Media. Once it completes that transaction and the Freedom deal, Sinclair will control more than 70 stations from Baltimore (Fox 45) to Las Vegas.

After a bankruptcy fright in 2009, when there was some question about whether the company could refinance, Sinclair's stock has recovered from less than a dollar to around $10. That's still less than half its all-time high of close to $30 (split-adjusted), reached in the 1990s.

People who bought Sinclair stock after it went public in 1995 have done better than if they had kept their money in a hole in the backyard. But barely.

Even though the two recent deals mean Sinclair will take on more debt, rating-agency Moody's said the acquisitions are "credit positive" in a report to investors. Not that the company's notes, rated in the upper-middle class of junk debt, are gold-plated.

Both bond and stock investors seem to be betting on a gusher of political ads next year. Thanks in part to the Supreme Court's Citizens United decision, which removed limits on corporate and union campaign spending, analysts have been quoted as saying that spending on political ads next year could reach $6 billion, a new record, and far more than the $5 billion and change from the 2008 election year.

Aside from the Florida station, the Freedom Communications deal also gave Sinclair two stations in Michigan and one in Oregon, both tossup states sure to be subjected to endless attack ads. Sinclair already owns stations in Florida as well as properties in other contested states such as Pennsylvania, Virginia and Ohio.

Its three stations in Iowa, whose caucuses take place in less than two months, should be able to print money between now and then.

But Sinclair needs more than political ads. Like other aging media companies, it needs to figure out its long-term plan. (Tribune Co., the parent of The Baltimore Sun, owns a couple dozen local television stations in various cities.)

Sinclair took an early stand on demanding fees from cable companies for retransmitting its signal. Expect continued cost-cutting at Sinclair stations, despite the forecast revenue surge. Like every media company, Sinclair hopes for good things to come from sending its signal to smartphones and other mobile devices.

And like other media companies, it needs to see the economy revive. It's still unclear exactly how much of the damage to traditional media came from the telecom revolution and how much came from the slump. But the companies would dearly like to see a year with 4 percent GDP growth so they can find out.

Speaking of the election, Sinclair and its controlling Smith family have a history of delivering their own, conservative political content. They caused a stir in 2004 with plans to air a tendentious documentary on Democratic presidential candidate John Kerry. The company's expanded presence in Florida and other battleground states could tempt it to enter the fray again.

But shareholders would be better off if management stuck to business. Sinclair's stations will be airing more than enough anti-Obama content in the form of ads without needing material from the Hunt Valley headquarters.